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How important are early investment experiences on subsequent investment decisions? A laboratory experiment on asset allocation

Dimitra Papadovasilaki, Federico Guerrero, James Sundali and Gregory Stone

Managerial Finance, 2015, vol. 41, issue 6, 582-590

Abstract: Purpose - – The purpose of this paper is to examine the influence of early investment experiences on subsequent portfolio allocation decisions in a laboratory setting. Design/methodology/approach - – In an experiment in which the task consisted of allocating a portfolio between a risky and riskless asset for 20 periods, two groups of subjects were confronted with either a market boom or bust in the initial four periods. Findings - – The findings suggest that after controlling for demographic characteristics, the timing of a boom or bust during the investment lifecycle matters greatly. Subjects that faced a bust early in their investment lifecycle held less of the risky asset in subsequent periods compared to subjects who experienced an early boom. Originality/value - – To the best of the authors knowledge this is the first laboratory study investigating the role of early aggregate shocks on subsequent investment behavior.

Keywords: Asset allocations; Behavioural finance; Booms and busts; Laboratory experiments; Portfolio decisions (search for similar items in EconPapers)
Date: 2015
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